With the London Marathon just behind us, it's amazing to see sterling has been
on a foreign exchange fun run of its own at the moment.

Sterling's performance is all the more impressive when you consider that not only is it at nearly 20-month highs against the euro, but that it is still within striking distance of year-to-date highs versus the US, Australian and New Zealand dollars.

But the surprise revelation that the UK’s output fell for the first three months of the year, pushing the economy back into a technical recession, caused the pound to pause.

Jeremy Cook of World Firstsays: “This news hasn’t destroyed the pound, it’s just quelled the rally, causing it to slip. We are not too worried in the short-term, as the trend for the pound is still one of strength against other G20 currencies. Traders will see this as a big buying opportunity. However, caution has to remain over the pound’s eventual course.”

"It will be interesting to see whether or not the UK economy has the legs to support sterling's startling run any further," says analyst Josh Ferry Woodward of TorFX. "Barring a bolt from the blue, the pound seems set to continue in the same direction against the euro."

This opinion is reflected by other commentators. In fact, Chris Towner of HiFX believes that the euro is still overvalued. It's easy to look back at the dark days when sterling sunk so low they were on a par and think anything over €1.20 is amazing, but as Towner reminds us, it traded between €1.40 and €1.50 for several years.

He says: "A strong currency either reflects a strong economy or it means that it is not as bad as the eurozone. The UK is three steps ahead of Europe in terms of reducing debt."

So how come sterling is ahead of the pack? For a start, a run of surprisingly positive economic data and higher than expected inflation means the spectre of more quantitative easing (QE) has slunk back into the shadows for the time being.

In fact, the Bank of England (BoE) is rapidly losing credibility as it has consistently said that inflation is going to fall back to its 2pc target.

"Once again, the BoE will soon be in the position of needing to explain why inflation has not fallen as much as it anticipated three months previously," says Simon Smith of FxPro. "Of course, nobody is expecting it to have perfect foresight, but the BoE is gaining a reputation for underestimating inflation."

Alistair Cotton of Currencies Directthinks the Bank will have to threaten higher interest rates – "even if it has no intention of following through" – to keep inflation expectations in check. And currency markets always love higher rates.

The other reason sterling is looking in good shape is that problems abroad are undermining other currencies.

Apart from the eurozone's well-publicised debt problems, Charles Purdy of Smart Currency Exchange points to "uncertainty for the commodity-backed currencies as Chinese growth falls, which could reduce the demand for imported commodities from Australia, Canada and Brazil. And in the US, early year growth has fallen back, undermining the dollar and increasing the possibility of further QE."

With the the Queen's Diamond Jubilee celebrations pending and the Olympics less than 100 days away, the UK has a festive summer ahead, with an influx of visitors and locals spending more freely. But David Kerns of Moneycorp warns that the boost to the economy could be short-lived.

"Looking forward, a summer of events including the Olympics, Euro 2012 and the Jubilee celebrations will continue to make it difficult to judge retail sales with any certainty," he says, "as they may slump soon after the frenzy of activity has died down."

And Lloyds TSB International's Trevor Williams is also cautious about the future for sterling. "For the time being, sterling is clearly benefiting from its 'safe haven' status. This could support sterling for some time, but we would note that the situation is volatile and the pound has experienced sharp depreciations and appreciations over the last year."

The message seems to be that the pound has enough puff for the time being, but that it can't keep this pace up for too much longer.